SAVINGS BANK OF MENDOCINO COUNTY
P. O. BOX 3600 - UKIAH, CALIFORNIA 95482
TELEPHONE (707) 462-6613
June 13, 1996
Norman Franks
Michael Laybourn
Mendocino Brewing Company
PO Box 400
Hopland, CA 95449
Dear Mike and Norman:
Confirming our earlier conversation, I am pleased to inform you that Savings
Bank of Mendocino County (hereinafter referred to as "Bank") has approved your
real estate loan application which will provide for first trust deed
construction and permanent financing for a 62,000 square foot brewery facility
which you intend on occupying. This approval has been provided subject to the
documentation, terms and conditions stated below:
1) Loan Amount: The Bank will provide a $2,700,000 construction and permanent
financing package.
2) Term of Loan: The Bank shall provide you with a five month construction loan
during which time frame the proposed facility will be completed. The note will
provide for the monthly payment of accrued interest. Following the construction
loan period, any outstanding principal loan balance will be rewritten subject to
a 25 year amortized repayment schedule and a 15 year balloon maturity. It is
understood and providing you are not in default of any term or condition
contained in the note, Joan agreement or deed of trust upon maturity, the Bank
will renew any outstanding principal loan balance for an additional ten year
period, subject to terms and conditions which will be negotiated at the time of
renewal.
3) Interest rate: The construction loan package will be priced at the Bank's
Base Commercial Rate + 2.00%. Interest rate adjustments during the construction
phase of the project will occur with changes in the Bank's Base Commercial Rate.
The permanent financing package shall be priced at a margin above the
now prevailing five year Treasury Constant Maturity Index so as to insure that
the initial loan rate will not be less than 10%. The permanent financing package
will further provide for an interest cap of 2% above the initial fully indexed
interest rate at the time of the first interest rate adjustment (5 year
anniversary) and 3% above the initial fully indexed interest rate at the time of
the second projected interest rate adjustment (10 year anniversary). The note
will further provide for an interest rate floor of 8.50%.
4) Origination fee: In addition to a documentation fee of $275.00 and an
inspection fee of $950.00, you will be required to pay to the Bank an
origination fee calculated as follows: 2% on the construction financing package
and a 1/2% origination fee on the permanent take out.
5) Pre-payment penalty: None.
6) Collateral: The loan shall be secured by the following:
a) A first deed of trust encumbering the property and improvements
located at 1825 Airport Road, Ukiah, California consisting of approximately 8
acres of land.
b) A first deed of trust encumbering the real property upon which the
waste water treatment facility is being constructed which is approximately one
acre in size.
c) The loan contemplated herein shall be additionally collateralized by
a security agreement, in form and substance satisfactory to the Bank and its
counsel, covering all fixtures and/or improvements which are located on the to
be encumbered parcel of property.
d) In addition to the foregoing, the loan will be further secured by an
assignment of any and all leases which you may execute with any other party.
9) Additional conditions precedent: Prior to the closing date or at the option
of the Bank, there shall be delivered to Bank, in form and substance
satisfactory to Bank and its counsel:
a) Copies of all of the projected construction contracts and each major
sub-contract in material supply contracts relating to the construction of the
improvements, together with the final plans and specifications and/or any other
additional data pertaining to the completion of the improvements which may be
required by the Bank. Said construction contracts and plans and specifications
are to be, in Bank's sole opinion suitable for assignment to the Bank.
b) Evidence that all consents, permits and approvals from government
authorities, required or advisable in connection with construction of the
improvements, have been obtained by Borrower.
c) Evidence that all roadway, water, sewer, electric and other
facilities necessary for the construction of the improvements, without
impediment or delay are now or will be timely available at the boundaries of the
land.
d) Evidence that payment has been made for all costs and expenses
relating to the examination of title, recording and filing fees and other
expenses involved in closing the loan, unless the items are budgeted to be paid
from the loan.
e) A copy of any and all construction contracts executed by Borrower in
connection with this project, with the understanding that these documents must
be acceptable in form and substance to the Bank and its counsel.
f) Financial statements and any other information which would serve to
confirm the qualifications of the proposed contractor.
g) Evidence that there is in place course of construction insurance
coverage, satisfactory to Bank and its counsel, in an amount adequate to protect
the Bank's interest with the provision that the policy identify the Bank as loss
payee.
h) Such other documents or other instruments or procedures as the Bank
may reasonably require.
i) Receipt of a copy of the approved loan commitment made by a
secondary lender providing for a $1 million loan advance which will be used in
association with the aforementioned project. Said commitment will further
confirm that the loan advance will be collateralized by a second trust deed
against the aforementioned properties, subordinate only to the $2,700,000 loan
advance contemplated in this commitment letter.
It goes without mention that our responsibility to provide this
financial accommodation is conditioned upon our approval of all of the terms and
conditions, loan document, etc. which pertain to this proposed secondary
financing package.
j) Confirmation that the Mendocino Brewing Company, Inc. has received a
$2,100,000 commitment for lease financing. As in the instance of the
aforementioned $1 million secondary financing package, our responsibility to
provide the financial accommodations over-viewed in this correspondence is
further conditioned upon our approval of the amount, terms, conditions,
agreements, documents, etc. which pertain to the lease financing package.
k) A properly completed environmental questionnaire.
1) Confirmation that the WestAmerica Bank has agreed to extend the
maturity specified on its $600,000 loan commitment to Mendocino Brewing Company,
Inc. until December of 1996. In concert with the foregoing, we will require
confirmation that WestAmerica has agreed to subordinate its security interest in
the equipment assets of Mendocino Brewing Company, Inc. to the leasing company
creditor which intends on providing the aforementioned $2,100,000 in lease
financing.
m) Confirmation that the prime contractor, BDM Construction, has agreed
to defer $400,000 of the construction contract until such time as Mendocino
Brewing Company completes its public offering which is expected to materialize
on or before December of 1996. In association with this deferral, it is
important that this account payable be converted to a promissory note prior to
our advancing the loan contemplated in this commitment.
n) Confirmation that you have employed a project manager acceptable to
Bank to manage the construction project on site.
10) Construction Loan Agreement: On or before the closing date, the Borrower and
Bank shall enter into a construction loan agreement, prepared in form- and
substance satisfactory to Bank and its counsel.
11) Approval of Documentation: All instruments evidencing and securing or
otherwise relating to the loan on the project, must be satisfactory to the Bank
and its counsel.
12) Performance Bond: A 100% California contract bond for both a 100%
Performance Bond and a 100% Labor and Materials Bond, issued by sureties
acceptable to Bank. The bond(s) must name Bank as a co-beneficiary and be
recorded.
13) Title Insurance: You will be required to provide ALTA title insurance
coverage together with any other endorsements which the Bank might determine
necessary, for the full amount of the loan, containing no exception other than
those approved by the Bank which are usual and customary to such properties.
14) Indemnification: You will be required to indemnify the Bank against any and
all liabilities, obligations, loses/damages, penalties, claim actions, suits,
costs and expenses of whatever kind or nature which may be imposed on, incurred
by or asserted at any time against the Bank in any way relating to or arising in
connection with, construction of the improvements, the offer of sale and/or use,
occupation or operation of any of the property to be encumbered by the
construction deed of trust. Said indemnification shall also cover damages
arising from existing, or future hazardous waste and/or substances located on
the property, including the cost to clean up or detoxify the property.
If for any reason the bank becomes concerned that there could be
related environmental liability risks associated with our liens on the real
estate, we may consult with an specialist and may require an environmental audit
to be conducted and our commitment is conditioned upon our conclusion based
thereon that risks are acceptable to us. While your cost reimbursement will
include such consulting and audit expenses, we will obtain your approval before
proceeding with such an audit.
15) Assignment: You will be unable to assign this commitment letter or any of
its rights hereunder, to any other person or legal entity without specific
written approval of the Bank. The Bank may sell participations in the loan to
other banks.
16) Termination: Bank, at its option, may terminate this commitment letter and
its obligations hereunder, if (a) Borrower shall fail to observe or comply with
any of the terms and provision contained herein, or (b) Bank shall find
unacceptable or shall not approve any document or agreement, or information or
encumbrance applicable to the project, or (c) Borrower or parties involved in
the project become insolvent, or (d) Bankruptcy, insolvency, reorganization,
receivership, disillusion arrangement or other similar proceedings are commenced
by or against Borrower or your assets under any federal or state law.
Michael and Norman, we appreciate this opportunity to be of service and
look forward to your returning to us the enclosed copy of this correspondence,
acknowledging your acceptance of this offer together with a check in the amount
of $5,000.00. Providing that the loan is negotiated, these monies will be
credited towards the origination and documentation fee assessments as outlined
above. In the event, however, you decide not to proceed with the loan closing
through the Savings Bank of Mendocino County and you successfully obtain
alternate financing, this fee will represent a non-reimbursable loan application
fee.
Further, this loan must be completely negotiated, documented and closed
by August 15, 1996 or our commitment will expire. It goes without mention that
our commitment is subject to such additional terms, conditions and requirements
as may be provided in our loan documents or by Bank counsel. Should any of the
foregoing require clarification, don't hesitate contacting me at your earliest
convenience.
Sincerely,
/s/ Martin J. Lombardi
Martin J. Lombardi
Vice President
Acknowledgement: s/s Norman Franks Date: 6-18-96